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Generational Dynamics Web Log for 22-Mar-2010
22-Mar-10 News - Germany vs Europe in Greece crisis

Web Log - March, 2010

22-Mar-10 News - Germany vs Europe in Greece crisis

French president Sarkozy has major losses to far left in regional elections

Stage set for Germany vs Europe in Brussels over Greece crisis

It appears that positions have hardened in Europe sufficiently that somebody is going to have to lose face at the EU summit in Brussels on Thursday.

Recall that Greece's Prime Minister George Papandreou delivered an ultimatum to Europeans: Help me out next week, or I'm going to the International Monetary Fund (IMF) for help. (See "19-Mar-10 News - Greece delivers ultimatum to Europe.")

European Commission president José Manuel Barroso responded by calling for eurozone countries to put a plan together. This plan might consist of loans or loan guarantees, designed to discourage speculators from betting on a Greek default.

But on Sunday, German Chancellor Angela Merkel told a radio interviewer that Greece should solve its own problems, and does not yet need aid. The NY Times quotes Merkel as saying, "Therefore, I don’t think it’s advisable to upset the markets by raising false expectations for the summit on Thursday. If Greece doesn’t need any help, then I don’t think the issue should be in the foreground."

Merkel is facing state elections in May, and a bailout of Greece is very unpopular with Germans right now, especially since their own economy is having its problems.

So as far as I can figure out, somebody has to suffer a political loss on Thursday and Friday. If some kind of bailout for Greece is on the agenda, then Merkel will be in political trouble, because she'll have to spend the meeting defending her refusal to help Greece.

But if it's not on the agenda, then Barroso will lose face.

And in that case, Papandreou will have to follow through on his threat to go to the IMF, thus angering the French, who say that the Europeans should solve their own problems. And then there'll be a very painful negotiation with the IMF, who will be willing to help Greece, but only is Greece imposes even more onerous austerity measures on its economy.

As I've said many times, there is no solution to this problem, and it's going to end badly, in a "debt spiral" and panic. The question is whether the Europeans can find a way to stall for a while longer (or, as journalists like to say, "kick the can down the road").

And there are several other countries in Europe, including the UK, that are in just as big a mess as Greece.

Sarkozy loses big in France's regional elections

French regional elections -- Sarkozy's party lost in all in provinces except in Alsace, shown in blue in France's northeast. <font size=-2>(Source: france24.com)</font>

French regional elections -- Sarkozy's party lost in all in provinces except in Alsace, shown in blue in France's northeast. (Source: france24.com)

As in other European countries, the economy is the major political issue that has led to a major political loss by the UMP, the centre-right party of President Nicolas Sarkozy. The winners were the Socialists and their left-wing allies.

This is part of an overall trend, as Europe goes deeper into a generational Crisis era, that people tend to abandon the center and more toward the left (the communists) or the right. (See, for example "5-Mar-10 News - Dutch elections give boost to right-wing Geert Wilders.")

I'm no expert on French regional politics, but I do know that Alsace has played a very important role in French and German history. In the Franco-Prussian wars of the 1860s, Germany captured and retained the two French provinces, Alsace and Lorraine. After its humiliating defeat in World War I, Germany was forced to pay reparations and to forfeit several territories, including Alsace and Lorraine. If time permits, I'll try to do some research to see if there's any connection to Sunday's election.

Lehman whistleblower informed management of unethical trades

The standard picture that financial institutions have been painting of themselves is that they were acting in good faith, doing what everyone else was doing, didn't thing they were doing anything wrong, and were surprised as everyone else when their toxic creations exploded. Certainly none of them should go to jail.

This is true of the Lehman Brothers collapse, on which a bankruptcy report was released last week. (See "13-Mar-10 News - Will 'Repo 105' scam send Lehman management to jail?")

It now turns out that the Lehman management was well aware of the Repo 105 scam, long before the collaps. The WSJ reports that Matthew Lee, a senior vice president, warned in a May,2008 letter that senior management was misleading investors about the true value of the firm's assets. He didn't use the phrase "Repo 105" in his letter, but it was those transactions that he was referring to.

Matthew Lee was fired several weeks after sending his letter.

I'm not a lawyer, but this looks like a smoking gun to me. Lehman management was defrauding investors, and they were informed that they were defrauding investors.

We mentioned briefly yesterday that JP Morgan also used the same Repo 105 transactions. We're talking about a corporate culture on Wall Street where it was OK to defraud investors in any way possible, so that bank managers could pay themselves million dollar bonuses. And if anyone dares to point this out, then he gets fired like Matthew Lee did.

Additional Links

There's a "youth bulge" in Yemen and many Mideast countries, according to Daily Reckoning. I find it amusing that they're just discovering this, as I've been writing for years how the birth rate among Sunni Muslims around the world is 2-3 times higher than everyone else.

"Pakistan simply sees no reason to stop supporting terrorists." Appearing in Pakistan's Daily Star.

(Comments: For reader comments, questions and discussion, see the 22-Mar-10 News - Germany vs Europe in Greece crisis thread of the Generational Dynamics forum. Comments may be posted anonymously.) (22-Mar-2010) Permanent Link
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